London Daily

Focus on the big picture.
Thursday, Jul 31, 2025

UK banks start cutting 'Truss premium' from mortgage rates, but slowly

UK banks start cutting 'Truss premium' from mortgage rates, but slowly

Having hiked mortgage rates after political turmoil drove up the cost of borrowing, British banks are now cutting home loan prices, albeit slowly, as markets calm since Liz Truss's government collapsed and Rishi Sunak took power.

Market chaos unleashed by Truss's vast unfunded tax-cutting plans in late September led lenders to withdraw around 1,700 mortgage products in the space of a week, before reintroducing them at rates 1-2 percentage points higher.

But as markets have stabilised and borrowing costs have fallen, the trickle of mortgage rate cuts has lagged behind.

Several key interest rate swaps - products that lenders use to lock in future rates before pricing fixed-rate mortgages - have fallen by between 1.3 and 1.4 percentage points from their Truss-administration peak, Refinitiv data shows.

By contrast, average rates on two-year and five-year fixed-rate mortgages have fallen just 0.16 percentage points, Moneyfacts data shows.

"Lenders are able to get away with not passing cheaper rates on to mortgage customers, aided by the failure of Britain's over-concentrated banking system to function like a competitive market," said Simon Youel, head of policy and advocacy at Positive Money, which campaigns for a fairer financial system.

A spokesperson for banking lobby group UK Finance said the mortgage market was competitive, adding that lenders used a range of criteria to determine pricing.

Housing experts say further price drops should follow based on the market shift since Truss and her team's departure.


Mortgage brokers say fixed-rate mortgage rates typically lag changes in swap rates, a trend which could be exacerbated this time as lenders focus on reintroducing products. The number of fixed-rate offerings is still down nearly a quarter from pre-Truss levels, according to Moneyfacts.

Lenders are under pressure to show they are treating customers fairly in the cost of living crisis, and have already faced criticism from consumer groups for not passing enough Bank of England rate rises to savers.

They also face the threat of a potential tax raid from Sunak's government as it looks to plug a gap in the country's finances.

Britain's housing market has boomed since the initial impact of the COVID-19 pandemic, but squeezed household budgets exacerbated by more costly home loans looks set to plunge it into a downturn.

The country's largest mortgage lender Lloyds (LLOY.L), owner of the Halifax brand, said on Thursday it expected a mortgage market slowdown next year, and for house prices to drop 8%.

After years of cheap borrowing, mortgage prices had been climbing this year as the Bank of England ratcheted up benchmark rates. But this accelerated after Truss's finance minister Kwasi Kwarteng laid out a disastrous "mini budget" on Sept. 23.

The average rate on a two-year fixed rate mortgage leapt as high as 6.65% by Oct. 20, Moneyfacts data shows, whereas prior to the budget it was 4.74%. Opposition politicians labeled the jump a "Truss premium" on mortgages.

The average two-year rate has since edged down 0.16 percentage points to 6.49% as of Thursday. Five-year mortgage rates have followed a similar pattern, Moneyfacts data shows.


FISCALLY MODERATE


However, market pricing on future benchmark rates has fallen significantly since peaking in late September, Refinitiv data shows, as markets have warmed to a more fiscally moderate finance minister Jeremy Hunt and prime minister Sunak.

Two-year interest rate swaps have fallen from a peak of 6.1% on Sept. 28 to 4.7% as of Thursday, according to Refinitiv data, greatly outpacing the dip in mortgage rates.

It's a similar picture for five-year rates. Money market five-year swap rates are down 1.3 percentage points from their post-budget peak to 4.4%, whereas the average five-year fixed mortgage is so far just 0.16 percentage points cheaper than the Truss peak, down from 6.51% to 6.35%.

"There have been a couple of signs of reductions, some are significant," said Mike Read, financial adviser at mortgage broker Prospect Tree Financial Services. "We probably need a few more weeks to see it filtering though."

Santander's (SAN.MC) British arm has been among the first lenders to lower mortgage rates this week, cutting some fixed rates by as much as 0.5 percentage points, according to Moneyfacts, while Yorkshire Building Society's Accord brand cut rates by up to 0.53 percentage points.

Barclays (BARC.L) finance chief Anna Cross told analysts after the bank's earnings that the mortgage market was competitive and pricing should follow market conditions.

Lenders have said increasing mortgage rates in recent weeks was the rational thing to do as volatile money markets priced much higher future interest rates last month, so higher prices were needed to avoid them writing home loans at a loss.

Lloyds said on Thursday its future pricing would partly be determined by moves in money markets.

"We'll have to see how these fare on a sustainable basis going forward," the bank's finance chief William Chalmers told reporters. "We will do our best to respond to customers in the most appropriate way."

Newsletter

Related Articles

0:00
0:00
Close
Former Judge Charged After Drunk Driving Crash Kills Comedian in Brazil
Jeff Bezos hasn’t paid a dollar in taxes for decades. He makes billions and pays $0 in taxes, LEGALLY
China Increases Use of Exit Bans Amid Rising U.S. Tensions
IMF Upgrades Global Growth Forecast as Weaker Dollar Supports Outlook
Procter & Gamble to Raise U.S. Prices to Offset One‑Billion‑Dollar Tariff Cost
House Republicans Move to Defund OECD Over Global Tax Dispute
Botswana Seeks Controlling Stake in De Beers as Anglo American Prepares Exit
Trump Administration Proposes Repeal of Obama‑Era Endangerment Finding, Dismantling Regulatory Basis for CO₂ Emissions Limits
France Opens Criminal Investigation into X Over Algorithm Manipulation Allegations
A family has been arrested in the UK for displaying the British flag
Mel Gibson refuses to work with Robert De Niro, saying, "Keep that woke clown away from me."
Trump Steamrolls EU in Landmark Trade Win: US–EU Trade Deal Imposes 15% Tariff on European Imports
ChatGPT CEO Sam Altman says people share personal info with ChatGPT but don’t know chats can be used as court evidence in legal cases.
The British propaganda channel BBC News lies again.
Deputy attorney general's second day of meeting with Ghislaine Maxwell has concluded
Controversial March in Switzerland Features Men Dressed in Nazi Uniforms
Politics is a good business: Barack Obama’s Reported Net Worth Growth, 1990–2025
Thai Civilian Death Toll Rises to 12 in Cambodian Cross-Border Attacks
TSUNAMI: Trump Just Crossed the Rubicon—And There’s No Turning Back
Over 120 Criminal Cases Dismissed in Boston Amid Public Defender Shortage
UN's Top Court Declares Environmental Protection a Legal Obligation Under International Law
"Crazy Thing": OpenAI's Sam Altman Warns Of AI Voice Fraud Crisis In Banking
The Podcaster Who Accidentally Revealed He Earns Over $10 Million a Year
Trump Announces $550 Billion Japanese Investment and New Trade Agreements with Indonesia and the Philippines
US Treasury Secretary Calls for Institutional Review of Federal Reserve Amid AI‑Driven Growth Expectations
UK Government Considers Dropping Demand for Apple Encryption Backdoor
Severe Flooding in South Korea Claims Lives Amid Ongoing Rescue Operations
Japanese Man Discovers Family Connection Through DNA Testing After Decades of Separation
Russia Signals Openness to Ukraine Peace Talks Amid Escalating Drone Warfare
Switzerland Implements Ban on Mammography Screening
Japanese Prime Minister Vows to Stay After Coalition Loses Upper House Majority
Pogacar Extends Dominance with Stage Fifteen Triumph at Tour de France
CEO Resigns Amid Controversy Over Relationship with HR Executive
Man Dies After Being Pulled Into MRI Machine Due to Metal Chain in New York Clinic
NVIDIA Achieves $4 Trillion Valuation Amid AI Demand
US Revokes Visas of Brazilian Corrupted Judges Amid Fake Bolsonaro Investigation
U.S. Congress Approves Rescissions Act Cutting Federal Funding for NPR and PBS
North Korea Restricts Foreign Tourist Access to New Seaside Resort
Brazil's Supreme Court Imposes Radical Restrictions on Former President Bolsonaro
Centrist Criticism of von der Leyen Resurfaces as she Survives EU Confidence Vote
Judge Criticizes DOJ Over Secrecy in Dropping Charges Against Gang Leader
Apple Closes $16.5 Billion Tax Dispute With Ireland
Von der Leyen Faces Setback Over €2 Trillion EU Budget Proposal
UK and Germany Collaborate on Global Military Equipment Sales
Trump Plans Over 10% Tariffs on African and Caribbean Nations
Flying Taxi CEO Reclaims Billionaire Status After Stock Surge
Epstein Files Deepen Republican Party Divide
Zuckerberg Faces $8 Billion Privacy Lawsuit From Meta Shareholders
FIFA Pressured to Rethink World Cup Calendar Due to Climate Change
SpaceX Nears $400 Billion Valuation With New Share Sale
×